A company has a very short window of time of five working days in which it can apply to cancel – also known as rescind – a winding up order.
This measure will be taken infrequently as in most instances, the company would have had adequate time to take action before the matters reached this stage. This is because prior to the order, the creditor would have issued a 21 day Statutory Demand and then the winding up petition, allowing a further seven days to clear debts.
So, by the time the order is received, matters are at a late and frankly, high risk stage. It should always be remembered that when a creditor seeks to wind up a company, they will be clear in their intention of closing down the business and will have spent time and money to get this done. The cost of winding up a limited company costs between £1,490 and £1,990, is covered by the petitioning creditor.
Rather than wait for the order to be granted, a company should always take advice at the earliest stage possible and work with an insolvency practitioner to look at alternatives to winding up, which will also satisfy creditors. This could be through proposing either a Company Voluntary Arrangement or having the business put into Administration. It may also be possible to dispute the amount of the debt, although in this case, directors will need to produce evidence to prove there has been a miscalculation or they could be seen as making accusations against the creditor or abusing the court system.
On What Grounds can a Winding Order be Cancelled?
A company will receive notice of the order directly from the court. There is no time to waste if they do want to try and cancel it as the five day clock starts ticking from the date the order is made. Possible reasons for the order to be cancelled are:
- There could have been a procedural error such as the court not having all the relevant facts when making the order.
- Company directors could not attend the hearing for the winding up petition.
- A new situation has arisen and the debt can now be paid.
- An application to ‘stay’ liquidation proceedings is made by a relevant party, which could be the Official Receiver, an appointed liquidator, a creditor or a company shareholder. This can be at any stage after the winding up order has been made, and includes both temporary and permanent staying of proceedings. This would generally be to allow the company another formal arrangement, as sanctioned by the court.
All of the above reasons are uncommon scenarios, given that directors would almost certainly have known that winding up was underway. As an example though, it might be that an investor has at a very late stage chosen to inject a sum of money into the firm and it is now rendered solvent and in a position to pay.
However if it is not possible to take any of these steps or if the company has simply run out of time, then the matter will be taken out of directors’ hands and the liquidation process will begin.
What is the Process to Cancel a Winding up Order?
The director needs to complete the government form 1AA. This needs to contain a witness statement, providing full details of assets and debts. The form can be submitted online, but only if the order was issued from one of the following courts:
- · Admiralty and Commercial Court
- · Chancery Division
- · Companies Court
- · High Court (including Bankruptcy Court)
- · London Mercantile Court
- · Rolls Building
If it was issued by another court, then the form will need to be sent by post. A fee of £155 also needs to be included with the form for the Companies Court or a district registry, whereas fees at country courts vary and the director should check what amount is due.
It is also necessary to ‘serve’ a copy of the application to the creditor who made the winding up petition (known as the respondent) and the Official receiver. Care should be taken that the respondent actually receives their copy and so it may be either done in person if possible or using a process server to do this – an insolvency practitioner or solicitor can provide guidance on this.
What Happens After the Application is Submitted?
The court should be quick to respond and this should be on the same day if emailed and by return with post. A hearing date will be provided and this is normally withing the next one to two weeks.
What Happens at the Court Hearing to Cancel a Winding up Order?
Both the respondent and the company director will present their cases to the judge. At the end of the hearing, a decision should be made on whether the application has been successful, with details provided in writing. However, if this is not possible and further evidence is needed, the judge may request this and the decision will be delayed.
If the decision goes against the company, the only remaining option could be to appeal to the Chancery Division of the High Court.
Acting Early is the Best Policy to Prevent a Winding up Order
The involvement at the earliest possible stage of court action is a company’s best way of rescuing the business or retaining some control as to how it is closed.
As the court process continues, directors face having their company bank account frozen and there is also a risk that the directors could be disqualified or held personally responsible for some debts. Once the Official Receiver is appointed, they will look at how the business has been run and the directors’ conduct for the three years leading up to insolvency. This will include probing transactions that might indicate one creditor was favoured over another or if any assets were sold under value.
Overall, unless there has been an exceptional change in circumstances, a winding up order will be difficult to cancel. Directors may need to realise liquidation is inevitable if the business is insolvent and if their action to cancel the order fails, then they may also face additional costs relating as levied by the Official Receiver and the creditor seeking the winding up.